Urban Politics #352: Seattle’s Minimum Wage makes us a World Class City

This week the Seattle City Council’s passage of Seattle’s $15 minimum wage legislation,Ord_124490, positions Seattle as a national leader in promoting sustainable economic development while also providing decent paying jobs. Seattle will show what a true world class city is: a city where all classes live in the same world, where they receive fair and livable compensation for an honest day’s work.

The Mayor, City Councilmembers, and supporters celebrate the historic vote in front of City Hall

We must recognize that the issue of raising minimum wages was kicked off by fast food workers who walked off their jobs at franchise stores a year ago in Seattle and even before that in New York City. They risked their jobs to turn this nation around, from placing investor returns above the basic needs of our citizens.

A recent Seattle Times Editorial argues that franchises are not arms of corporations. They point out that franchises have their own tax ID numbers and payroll – they are independent business units separate from the franchiser. Typical agreements offer franchises a brand, a business model, some marketing and bulk buying power. In exchange, franchises pay about 4 to 7 percent of their gross profits back to the franchiser. So, the Seattle Times argues they are just small local businesses receiving corporate support.

However, a closer look reveals a far different kind of entity. For instance, consider Subway franchises, the world’s largest fast-food chain. It has 57 locations in Seattle, by far the most of any franchise here. Subway operators claim to be small businesses. However, Subway Corporation provides more than just a brand name. They have an integrated relationship describing everything from set-up to marketing with each store under a franchise agreement, which is found in a 500 page document filed with the State. Each owner of a franchise chooses freely to enter into a Subway contract as a business venture. They could open an independent store, but they recognize the value of being in a tight legal relationship with a national corporation. The corporation on the other hand depends on a franchise business model based on low wages. As employees begin to earn more the corporation will have to adjust their model. And that is a good thing.

Seattle is taking direct action to close our nation’s huge income gap between the very wealthy and the rest of us, because the Federal and state governments have failed to do so. Although the average workers’ wages have remained stagnant, the pay for those at the top has skyrocketed. In 1965, CEOs made 20.1 times the pay of the average worker. By 2012, that ratio was more than 10 times larger: CEOs made 273 times the pay of the average worker in 2012.

Later this month, I will be attending meetings in New York City with the national Local Progress organization to discuss how Seattle’s legislation relates to other cities’ efforts to increase their minimum wage. New York City’s second most powerful political position in the city after the mayor, City Council Speaker Melissa Mark-Viverito, said the day after Seattle’s vote that she would like to see the minimum wage in her city bumped to as much as $15 an hour, nearly double her state’s current minimum wage of $8. Without a doubt, we will witness other municipal officials making similar proposals. I suspect they recognize that municipalities must do something to stop the middle class from shrinking any further.

This trend is noticeable in Seattle. According to Seattle’s Office of Economic Development, the top quintile, or the wealthiest 20 percent of households here, took home about 51.8 percent of all household income. This compares to 50.2 percent nationally. The bottom two quintiles together, the poorest 40 percent, took home 10.5 percent of income compared to 11.8 percent nationally. The wage gap in Seattle is larger than the nation’s average. And the gap is even more pronounced among minority ethnic groups. African American and Native American median incomes are 8 percent lower in Seattle than the national average. And Asian American incomes are dramatically lower, something like 30 percent.

This is a condition that apparently is not recognized by many neighborhood business organizations. An informal group of business organizations representing small business throughout Seattle completed a survey this March of its respective members regarding an increase in the minimum wage. Only 28 percent of respondents did not believe that income inequality is a problem in Seattle and only 27 percent agreed that raising the minimum wage will reduce income inequality. Respondents generally agreed that there were other avenues to consider when addressing the issue of income inequality, namely access to affordable housing (60 percent), child care assistance (49 percent), and healthcare assistance (49 percent). While these services are certainly needed and must be pursued, I believe the missing point is that these services are currently unaffordable for many. Raising one’s income is the surest path to being able to afford them.

Seattle’s new law opens the way for many workers to earn enough to meet their basic needs. It will raise their standard of living and by putting more dollars into our economy, thereby stimulating greater commercial activity. By significantly raising the minimum wage, Seattle’s prosperity will be shared by more people while creating a sustainable model for continued growth. Research from the Federal Reserve Bank of Chicago reveals that a $1 minimum wage hike increases household spending by about $700 per quarter in the year following the increase.

Seattle’s next critical step is to create an Office of Fair Labor Standards Enforcement, to assure that all businesses are being treated equally under our labor laws. We cannot expect responsible businesses that are treating their employees fairly to be at a competitive disadvantage with those businesses that are not administering fair labor practices. I look forward to proposing legislation that will have this new office operating at the start of next year.